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The End of Prosperity: How Higher Taxes Will Doom the Economy--If We Let It Happen | 
 enlarge | Authors: Arthur B. Laffer, Stephen Moore, Peter Tanous
Publisher: Threshold Editions
Category: Book
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Rating:  31 reviews
Sales Rank: 2271
Media: Hardcover
Number Of Items: 1
Pages: 352
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Dimensions (in): 9.4 x 6.2 x 1.4
ISBN: 1416592385
Dewey Decimal Number: 339.520973
EAN: 9781416592389
ASIN: 1416592385
Publication Date: October 14, 2008
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Product Description
Arthur Laffer -- the father of supply-side economics and a member of President Reagan's Economic Policy Advisory Board -- joins economist Stephen Moore of The Wall Street Journal editorial board and investment advisor Peter J. Tanous to send Americans an urgent message: We risk losing the exceptional standard of living that has made us the envy of the rest of the world if the pro-growth policies of the last twenty-five years are reversed by a new president.Since the early 1980s, the United States has experienced a wave of prosperity almost unprecedented in history in terms of wealth creation, new jobs, and improved living standards for all. Under the leadership of Presidents Ronald Reagan and Bill Clinton, Americans changed the incentive structure on taxes, inflation, and regulation, and as a result the economy roared back to life after the anti-growth, high-inflation 1970s. Now the rest of the world is following the American economic growth model of lower tax rates, more economic freedom, and sound money. Paradoxically, one country is moving away from these growth policies and putting its prosperity at risk -- America. On the eve of a critical presidential election, Laffer, Moore, and Tanous provide the factual information every American needs in order to understand exactly how we achieved the prosperity many people have come to take for granted, and explain how the policies of Democrats Barack Obama, Hillary Clinton, and Nancy Pelosi can cause America to lose its status as the world's growth and job creation machine. The End of Prosperity is essential reading for all Americans who value our nation's free enterprise system and high standard of living, and want to know how to protect their own investments in the coming storm.
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| Customer Reviews: Read 26 more reviews...
 Understanding the effect of taxation on the economy December 2, 2008
1 out of 2 found this review helpful
This is an exceptional book for those who relate taxes and economy. The authors with years of experience analyze in a comprehensible way the effect of high taxation on the economy. In particular, the advantages of flat taxation has been clearly and convincible demonstrated. It is wishfull thinking for our politicians to read this book and begin a non-ideological discussion on taxes. Furthermore, it is anazing to read the 180 degree turn of eastern Europe to such taxation. As Milton Freedman said " there is no Democracy without economic freedom"
They did NOT say "end of the world"; only "end of prosperity" November 25, 2008
3 out of 4 found this review helpful
Fortunately for us readers, the authors did not use such a doomsday title. From the viewpoint of a US citizen, though, end-of-prosperity is ugly enough. These three authors, quite famous academic-grade finance/economic people, did do a superb job of spelling out their points in very clear language. For readers who have had to slog and struggle through "regular" works on economic systems, you will understand how important this is in choosing another book on the topic!
The style of "Prosperity" is not only clear and simple, the topics of each chapter can almost stand on their own, and may very well have done so over past years for various essays and papers. Lest anyone reading this review shudder at the thought of "essay" and "papers," be assured that all the text is written with good humor, and the thoughts flow freely one to the next. At the end, the reader will most assuredly understand clearly the arguments of supply-side economics, and see the backup information justifying their conclusions. Above all, they wish to convince the reader that there are well-defined policies which lead to national economic growth, and those which have proven never to work. Obviously the goal is avoid the ones which have never worked.
Personal favorite chapters: Ch 4, "Honey, We Shrunk the Economy - the 1970s," Ch 6, "What Bill Clinton Could Teach Barack Obama," Ch 8, on how the good Gov Schwartzenegger ran California down, and Ch 13, which explains the flat tax option. As other reviewers have stated, that last chapter could be skipped: what to invest in for "troubled times" ahead. One senses that they are really out of their depth here. None of their business anyway! Good book - buy, or borrow from your library.
 Unintentional humor: Laughing at the Courtesans of Laissez-Faire.yland* November 25, 2008
2 out of 11 found this review helpful
The publication of Dr. Laffer's new book [where appropriate, I will write `Laffer' to refer to authors Laffer, Moore, and Tanous] has turned out to be perfectly timed to be greeted with the laughter it deserves: just when the economy is in serious trouble as a result of seven+ years of the Bush administration implementing Laffer's cockamamie economic theories. Whoever it was that said "Show me a supply-side economist and I'll show you an intellectual courtesan!" really hit the nail on the head. If I understand it correctly, that remark suggests that supply-siders begin with the economic conclusions that the super-rich want to hear (and want the general public to believe), and reinterpret or edit economic history to support those theories. And the current economic meltdown renders Laffer's theories truly laughable.
But we cannot have the first laugh: see the December, 1981 issue of Scientific American for Martin Gardner's famous article "The Laffer Curve, and Other Laughs in Current Economics.
I will not discuss the introduction and chapter 1, because I would have little to add to Mr. Tim Warneka's excellent review. He was, quite reasonably, unwilling to commit any more time to reading Laffer's drivel. I persisted, and except for the final chapter, it didn't get better.
On page 40, Laffer states that " In fact the vast, vast majority of the people who got rich over the last twenty-five years were not rich at the start of this period . . . ." This comes as a surprise? Most of those who were already rich GOT RICHER, but those who were already rich at the beginning couldn't GET RICH unless they first lost their wealth. Some no doubt did, but they were a tiny minority.
The last sentence on page 40 is "Lower tax rates have made the tax system more progressive, not less so (see figure 2-2) This is an outright lie. The tax SYSTEM was, and is, regressive, and the Reagan tax cuts made the only tax in the system that was progressive, less so. A progressive tax system would take a larger percentage of a larger income; a proportional (flat) tax the same percentage, and a regressive tax a smaller percentage. For example, if my income is $X and I pay a total of $1,000 in taxes, (including income, FICA, sales tax, property tax, and other taxes, then if my income doubles to $2X, under a flat tax I would pay $2,000. If the tax system were progressive, I would pay more, say S2,500. Under our present regressive tax system, I would pay less, perhaps $1,500.
Now Figure 2-2 shows "Top Marginal Income Tax Rates and Income Tax Share for the Top 1% of Earners 1980-2005" and the correlation between the two appears to be slightly less than zero, but nowhere near a perfect negative correlation of -1. But the key item that is omitted is the percent of total income received by the top 1%, which increased many fold, so with even a proportional (flat) tax the percent of total tax revenue received by the government from the top 1% would have much more than doubled. It didn't. If you include all taxes, it didn't even double. A more pertinent graph would show total income and total taxes paid per $100 of income received by the top 1%, and the same for the bottom 20%, but that information would undermine the thesis Laffer is promoting.
Reading this book does, indeed, seem like a journey thru fairyland, or at least some fanciful alternate history, but one nowhere near as well-crafted as Eric Flint's 1632 (The Assiti Shards) and its sequels. And Eric Flint made no deceptive use of statistics, whereas Dr. Laffer is, I gather, a serious student of Darrell Huff,^ but at face value. For example, on page 116, Laffer states:
. "The New York Times published a front-page story on March 5, 1992 which screamed [sic]: "Even Among the Well-Off, the Richest Got Richer." It then pronounces that "the top 1% received 60% of the gain from the 80's boom."
. Not quite. From 1981 to 1989, every income group--from the richest to the poorest--gained income, according to the Census Bureau economic data (see Figure 5-7). The reason the wealthiest Americans saw their share of total income rise is that they gained income at a faster pace than did the middle class and the poor. But Reaganomics did create a rising tide that lifted nearly all boats.
Those of us who have never heard a printed page scream, or pronounce anything, may be justified in doubting the neutrality of the first of Laffer's two paragraphs quoted above. "Screamed" carries a connotation of irrationality and "pronounced" of arrogance, qualities best associated with those one wants to discredit, but with deniability.
But note that "Not quite." Is the only thing in the second paragraph that contradicts the claim that "the top 1% received 60% of the gain from the 80's boom." Figure 5-7 may seem to, unless you read and understand the fine print, which reveals the bar graph to be a clever case of deceptive use of statistics. Figure 5-7 is headed "Changes in Real Family Incomes (by upper limit of each quintile )." The last word, `quintile' is followed by an asterisk, which refers to some fine print below the graph: "Since there is no upper limit on the richest quintile, that figure refers to the lower limit of the top 5 percent." This is what logicians call `equivocation,' because the phrase `no upper limit' is used in such a way as to suggest that, there being `no upper limit,' it would have been impossible to graph the entire top quintile. Not so. There is no DEFNITIONAL upper limit. If there had been an American with an income of a trillion dollars ($1,000,000,000,000), that American would have been in the top quintile by definition. But there was an ACTUAL upper limit, because no quintile contains an infinite number of families. The actual upper limit was the highest before-tax income of any American family. Including the top 5% in the graph would have been possible, but then the graph would have shown the truth Laffer apparently wanted to conceal.
It is difficult for a retired individual like me, without subordinates to do extensive research, to find the exact figures on which Figure 5-7 should have been based, but I found on page 31 of Perfectly Legal: The Covert Campaign to Rig Our Tax System to Benefit the Super Rich--and Cheat Everybody Else, by David C. Johnston, a graph showing that from 1970 to 2000, the real income, adjusted for inflation, of the top 10% of American taxpayers, increased by 88.6% while that of the lower 90% of American taxpayers DEcreased by 0.1%; and on page 34, another graph shows that over the same period, the average income of the lower half of the the top 10% (percentiles 90+ thru 95) increased by 29.6%, while that of the lower 4/5 of the top 5% (percentiles 95+ thru 99) increased by 54.2%, that of the lower half of the top 1% increased by 89.5%, and that of the top % by 144.8%. The data for these graphs were taken from a paper by economists Thomas Picketty and Emmanuel Saez, who also reported that the share of national income received by the top 0.01% in 2000 was more than 500% of what it was in 1970. I think we can safely estimate that if Laffer's Figure 5-7 had presented an honest picture, the black bar on the right would have been about twice as high as it is.
It would have been more honest had Laffer put the `Not quite.' at the end of the second paragraph. Ronald Reagan claimed credit for taking millions of Americans off the income tax rolls entirely, reducing their income tax payments to zero. That claim is true with respect to income tax payments made directly to the IRS, but it ignores the incidence of the federal income tax. For those poor and middle class people who lived in homes rented from private landlords, what they saved in direct payments to the IRS was more than offset by the rent increases caused by increased income taxes on owners of rental housing. The incidence of a tax is who ultimately ends up paying it. The incidence of the increased tax on landlords was mostly on the tenants, who typically paid about $200.00 less per year in income tax and $1000.00 more per year in rent. Oh those lucky poor!
On page 68, Laffer states that the Clean Air and Clean Water acts "were well-intentined but heavy-handed blows to the solar plexus of American industry, imposing costs far exceeding benefits from the cleanup legislation." Evidence presented in support of that claim? None whatever. Now it may be that the costs newly imposed ON THE POLLUTERS (which were from the beginning their MORAL responsibility, which they had been IMMORALLY imposing on the general public) far exceeded the benefits TO THE POLLUTERS of cleaning up their act. But experience has shown that such cost-benefit comparisons are generally arrived at by resolutely ignoring all benefits that cannot be mathematically proven (such as less loss of work from respiratory illness--`that may have been the result of taking more vitamins or getting more exercise or . . .'), placing no monetary value on reductions in pain and suffering, making the lowest possible estimate of the value of any proven benefits, and making the highest possible estimate of the costs, often including theoretically possible costs never shown to actually occur.
On page 93, Laffer quotes from "Paul Craig Roberts of the Treasury Department" without revealing that Roberts is a leading supply-sider:
. . . "Keynsians do not realize that investment is crowded out by taxation. SUPPOSE that a 10 percent rate of return MUST BE EARNED if an investment is to be undertaken. In the event that the government imposes a 50 percent tax on investment income, investments earning 10 percent will no longer be undertaken." [emphasis added]
The first sentence is what is called hostile mind-reading, and like most such, it is of highly dubious accuracy. I would challenge anyone to find a living Keynesian who doesn't realize the theoretical possibility of crowding out (the dead may, if you insist, be considered not to realize anything any more). As for the rest of the paragraph, so what? The stated supposition has never been enacted into law and is extremely unlikely to be so enacted; and for every potential investor so stupid and pig-headed as to keep his money in non-interest-bearing cash rather than invest at 9 percent instead of the 10 percent he'd like to get, there are surely dozens who would prefer any positive rate of return to zero, and would take the best return they could get, rather than pout and sit on their money and get nothing.
Figure 7-2 on page 143 is a deceptive graph, because the vertical scale runs from 124 to 140 million. By not showing the lower 88% of the vertical scale, Laffer makes it look as if the number of jobs more than doubled under the Bush administration, when actually the increase over the first six and a half years was a measly 4%, or about 5/8% yearly, compared to 1% in the last year of the Clinton administration.
On page 149, Laffer writes: "The biggest budget atrocity of all was the Bridge to Nowhere in Alaska. This bridge, recommended by Senator Ted Stevens of Alaska, had a $200 million price tag to service an island with fewer than fifty residents." Now I will agree (1) that it is probably better that Senator Stevens was not reelected and (2) that the proposed bridge almost certainly would not have been worth the cost of building it, and therefore it is good that it was cancelled. But it is deceptive to make it appear that the only purpose of the bridge was to serve the fewer than fifty residents of Gravina Island. The truth is that the primary benefit of the bridge would have been to serve travelers arriving at or departing from Ketchikan International Airport (which is on Gravina Island), and a secondary benefit might have been to open up the rest of Gravina Island to residential and/or commercial development (maybe a good idea, maybe not, I don't know). But it is not honest or decent to lie about it by omitting significant facts in order to pile onto Senator Stevens more ridicule and opprobrium than he deserves.
Figure 7-3 on page 151 has an honest vertical scale (it starts at zero, as it should) but the choice of data graphed is deceptive, because it shows the gross dollar amount of revenue received from each group (omitting to say what taxes are included; I assume federal income tax only, because that choice skews the graph the most in support of Laffer's desired conclusion, and the poor pay far more in total sales tax than do the rich). If it showed the total taxes (including state and local taxes) paid per dollar of income, it should come as no surprise if the line for the bottom 50% turned out to lie above the line for the top 1%.
Figure 9-2, page 196, has an honest vertical scale on the left, for the bar graph of GDP per Capita, but a dishonest one on the right, for the line graph of life expectancy. And the horizontal dimension, "economic freedom," is not clearly defined; it is said to be the ranking of 80 nations by three professors in a "Cato Institute study," but what is counted as more or less economic freedom is not revealed. Considering the source, I would expect that their definition of economic freedom to be freedom of the very rich to have things their way. For example, their idea of economic freedom might include freedom of businesses from being subject to lawsuits, whereas you and I might prefer to count our freedom to sue for damages if we suffer injury caused by a defective product. And could the good professors have chosen to rank those 80 nations which would best support their thesis?
Even having taken a high-school economics course should be sufficient to prevent one from writing the laughable statement on page 203 regarding a lemonade stand: ". . . the lemons and the stand are the essential capital . . . ." The stand is capital, but the lemons are not. They are material, that becomes part of the finished product.
On page 211, Laffer argues that taxing capital gains is double taxation. But actually every tax can be regarded as double (or multiple) taxation. Income and FICA taxes are deducted from every worker's pay even before s/he receives it. Then, when s/he spends it, in most states sales tax is added to the price of most goods and services bought. The purchase price becomes income to the seller, which is taxed, and if the seller has employees, s/he must pay FICA tax on their wages, and so on. If every after-tax dollar were marked `taxed' and never again be subject to tax, soon every coin and every piece of paper money and every bank account and investment account would be so marked and no more taxes could be collected except on money newly created. Government services would virtually cease. Chaos would reign, briefly, until someone (likely not a benevolent someone) seized power.
To obtain the benefits claimed for a low or zero tax on capital gains, it is neither necessary nor desirable to reduce or eliminate taxes on all capital gains; this merely encourages firms to arrange that profits be eliminated and the stockholders be given capital gains instead. Better to have partial exemptions for venture entrepreneurs and suppliers of venture capital, but not for rentiers.
Laffer devotes chapter 11 to arguing against the estate tax, which he incorrectly refers to as the `death tax,' because that term is believed to evoke a more negative response. On pages 217-8 he writes: "The left has concocted a fairy tale that Americans don't have to sell their businesses or farms to pay the death [sic] tax, but the reality is it happens all the time." I challenge anyone to document even one example of a farm that had to be sold to pay the estate tax; the last I knew, it hadn't actually happened. What does happen quite often is that heirs who don't want to run a business or farm sell it, pay whatever taxes are owed, if any, and spend or invest the rest as they wish.
Laffer also claims on page 218 that the estate tax "slows economic growth and thus reduces other tax receipts," but presents not a shred of evidence.
Perhaps the book's high point of absurdity is on page 231, where Laffer writes: ". . . the politicians say: We must eliminate our trade deficit. Well, the BEST WAY to do that is to slow the economy and slide into the ditch of a recession." (emphasis added) Laffer may think that a recession is the best solution, but surely I am not the only one who finds that notion laughable.
Almost as laughable is: "The greater net wages received, the more willing a worker is to work. If wages received fall, workers find work less attractive and they will do less of it." Obviously written by someone who never worked for an hourly wage, where the number of hours one works per day and per week is set by the employer, as are productivity goals. Most hourly work is not attractive in itself; it is the pay that attracts the workers, who have to work to support their families. If pay is too low, the worker may be forced to hold 2 or even 3 jobs to make ends meet. Raising pay of one job to a living wage would likely cause the worker to quit the extra job(s) and thus to work less.
While it is true that a significant correlation between two phenomena suggests that causation is involved, it can not necessarily be correctly inferred that the direction of causation is that which would give support to the conclusion you wish to arrive at. On page 286 Laffer writes: "There is very little evidence from the past twenty-five years that immigrants displace native workers from jobs or depress wages on average. States with high levels of immigration have lower overall rates of unemployment than states with few immigrants." The conclusion which would support Laffer's argument, which he obviously wants the reader to jump to, is that high levels of immigration lead to lower levels of unemployment. But this has causality exactly reversed. It is precisely those areas with low unemployment which most attract immigrants. They want to go where the jobs are plentiful, not where unemployment is rampant.
On page 288. ". . . these ideas have been tested again and again, always with negative consequences." Conclusion: they are bad ideas, right? WRONG! Virtually any economic or political idea that is tested will have negative consequences, AND POSITIVE ONES! If the negative outweighs the positive, of course, the idea should be rejected or, possibly, modified to reduce the bad consequences before testing it again. But if the positive outweighs the negative, then go with it!
Watziznaym@gmail.com
* Thanks to Jim Hightower's "Lowdown" for suggesting the term Laisez-Faire.yland
^ Darrell Huff, How to Lie With Statistics
Prosperity challenged November 22, 2008
4 out of 6 found this review helpful
While there is more to the economy than taxes, "The End of Prosperity" offers a cogent analysis of the things government does right (increases incentives, minimizes its own role in making thisgs happen) and wrong (protective enterprises and industries of changes that should happen and regulating the financial system). The authors are pessimitic because they conclude that the age of incentivizing risk-taking through lower taxes on capital is all but at an end.
If timing is everything, the authors' timing was poor, not that they had any control over it. The financial crisis, the collapse of equity prices, and the economy in turmoil did not get the treatment is deserves. Why we are here and how we get out of it is not addressed in this book which is unfortunate. I would like to know the authors' analysis of what went wrong and of government's response to it. They need to do a new last chapter, not an easy thing to do when the book is aleady published. A revised edition anyone?
We can't say that we were not warned November 21, 2008
7 out of 9 found this review helpful
This book was pretty much what I expected: a loud siren acting as a wake-up call to the Obama administration. But, to my surprise, it turned out to be a lot more. I learned a great deal here.
The most surprising thing: JFK was a supply-sider! Back in the early 60s, Democratic President John F. Kennedy was proposing tax cuts to get the economy moving, and the NAY-SAYERS were a bunch of curmudgeonly Republicans. (In a similar vein, you will be astonished to learn that this story goes back all the way to Warren Harding!)
Kennedy got his tax-cut package passed (just as Ronald Reagan did) and the economy took off. Tragically, Kennedy was shot dead, and America unfortunately entered what the authors call the "Four Stooges" period of the American Presidency: LBJ, Nixon, Ford, and Carter. Particularly interesting was the slicing-and-dicing of Richard Nixon. He has become known as "The Watergate Villain," and almost nobody remembers his disastrous, idiotic mismanagement of the economy. Wage and price controls, anyone? "We are all Keynesians now?" Ford and his silly WIN buttons helped not a bit, and then Jimmy Carter managed to drive the misery index to its highest level in decades. The Four Stooges, indeed.
I haven't finished this book yet, but I've already learned so much from it that I thought I should post this review. And I will close with a single image, which may be helpful to those who still think that the U.S. President can do as he pleases. This is Bill Clinton, who is getting sound advice that his re-election depends on maintaining credibility with key financial markets.
Clinton is so angry he pounds his desk, and shouts, "You mean to tell me that the success of the program and my re-election depends on the Federal Reserve and a bunch of *(%@&(% bond-traders??!!"
I suspect that this Clinton Moment is due for a replay in the very near future.
In the meantime, read this book. It is excellent in every way.
I sometimes wonder why we don't teach economics in high school!
As for those who think this is a "pro-Republican book," or an "anti-Democrat book," please go back and read this review again. The book heaps praises on JFK, trashes LBJ, Nixon, Ford & Carter, praises Bush Senior until his tax-betrayal -- and, in sum, is almost totally indifferent to partisan politics. What counts, for the authors, is how we will manage our economy.
Can we find a candidate willing to commit to a goal of economic growth? I suspect the White House is waiting for him.
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